By: Manny Ita

The shares of United Bank for Africa, UBA, may be one of the early beneficiaries of the bottom-out amidst a flicker of hope on recovery from the Nigerian Stock Exchange, NSE, three-week long bear run. The stock had positive investor sentiment pulling it back from slide and lifting it by 2.15 per cent gain last week, as against 0.08 per cent decline recorded by the NSE benchmark week-on-week.

Investment analysts and stockbrokers had attributed the initial price down on the stock to the bandwagon effect of t characterised March 2018 tradings. But it appears that many stocks with strong financial fundamentals especially in the just released 2017 full year, FY‘17, financial statements, as well as pointers to an impressive first quarter 2018, Q1’18, such as UBA, would be having a faster recovery.

The group chief financial officer, GCFO, of the bank, Mr. Ugo Nwaghodoh, in a chat with Financial Vanguard, had expressed optimism that the recent adverse investor sentiments in most stocks would soon give way to the reality of strong positive sentiments especially for UBA and other stocks with sound fundamentals. Regulatory requirements He had told a gathering of financial media professionals that some of the key drivers of the bank’s FY’17 impressive performance announced two weeks ago include: Growth in interest income; Efficient cost of funding; and Continued growth in trading activities, supported by the bank’s successful Eurobond float which provided it competitive FX liquidity. He also noted that the bank had maintained high liquidity even in the tight circumstance and market situations at 50percent as against regulatory requirements of 30percent, adding that despite the spike from 3.9percent to 4.6perthe spike from 3.9percent to 4.6percent in its non-performing loans ration, the bank’s capital adequacy ratio is still stronger than most bank’s at 20 percent as against the regulatory minimum of 15 percent.

Perhaps one of the most attractive investment value unique to UBA is the contribution of the subsidiaries outside Nigeria. The bank’s FY ’17 results show significant growth in the contribution and market share from its pan-African subsidiaries, among other positive trends in the financial performance. The audited results showed that gross earnings grew substantially to N462 billion, up by 20 percent from N314 billion recorded in the corresponding period of 2017. Also the Group delivered a strong 16 per cent year-on-year growth in profit before tax of N105 billion, compared to N90.6 billion in the 2016 financial year. The Bank’s subsidiaries outside Nigeria contributed a third of the Group’s top-line and 45 per cent of the profit for the year, a remarkable improvement from 31 percent contribution made by the ex-Nigeria offices in 2016.

This, according to Nwaghodoh affirms the success of the Bank’s expansion strategy, with target of 50 percent contributions by 2020. He also said this development would moderate impacts on the bank from adversities in any single market, citing the situation in Nigeria where earnings in fixed income securities are expected to trend down due to policy changes by the Central Bank of Nigeria, CBN, a development which Nwaghodoh said is not happening in all other economies UBA operates in. Financial highlights The Bank’s Operating Income grew to N326.6 billion, a 20.6 percent increase compared to N270.9 billion recorded in 2016. This, according to analysts, affirms the capacity of the Group to deliver strong performance through varying economic cycles and challenging business environment. The audited results also showed that the Bank’s Total Assets peaked at N4.07 trillion, translating into 16.1 percent year-on-year growth from the figure of N3.50 trillion recorded as at 2016 financial year. In the 2017 financial year, the Bank’s Net loans achieved a prudent 9.7 percent growth at N1.65 trillion, while the customer deposits grew to N2.73 trillion, representing 10 percent year-on-year growth on N2.49 trillion recorded in 2016 financial year.

Reflecting a strong internal capital generation, the Bank’s shareholders’ fund also soared 18.2 percent to N529.4 billion in the 2017 financial year. Subject to the approvals of the shareholders, the Board of UBA Plc proposed a final dividend of 65 kobo per every share of 50 kobo each. This final dividend proposal is in addition to the 20 kobo per share interim dividend paid after the audit of the 2017 half year financial statements, thus putting the total dividend for 2017 financial year at 85 kobo per share. Speaking on this financial performance and the bank’s overall financial position, Nwaghodoh stated: “In a period of high interest rates, we achieved a relatively low 3.7 per cent cost of funds. This operational efficiency reflects the benefit of our rich pool of stable savings and current account deposits. The net interest margin stabilized at seven per cent, even as yields on treasury assets dropped in the last quarter of 2017. Our core transaction banking offerings gained strong momentum, with income from these business lines growing by double digits. “We remain committed to our responsible approach to balance sheet management, with focus on growing risk asset and broader balance sheet in a profitable and prudent manner. Amidst a subdued Nigerian credit market, we grew our loan portfolio by 10 per cent, leveraging our robust liquidity and capitalization to support good businesses through this challenging economic cycle. We closed the year with a Basel II capital adequacy ratio of 19 per cent and a liquidity ratio of 50 per cent, well ahead of 15 per cent and 30 per cent regulatory requirement respectively. Our disciplined approach to lending and broader risk management continues to uphold our asset quality.” Operational Efficiency Notwithstanding tight system liquidity, UBA’s net interest margin remained stable at 7.0 percent, as it sustained cost of funds at 3.7percent.

Reflecting the impact of higher cost of risk, the bank closed the year with 16 percent return on average equity (RoAE) and 2.1 percent return on average assets (RoAA). Having conservatively provided for the major hit to its risk asset portfolio, the bank’s GCFO expects both RoAE and RoAA to recover strongly in 2018. He stated: “We expect our improved customer service and innovative offerings to accelerate market share gain just as technology enhancement and investment in people should drive productivity and efficiency gains.” Diversified Asset In spite of slow recovery in economic activities in Nigeria, UBA’s single largest market, the Group’s total assets grew 16 percent year-on-year, buoyed partly by the successful issuance of USD500 million debut Eurobond and a change in exchange rate for translating the FX balances. Leveraging on enhanced customer service, the Group grew retail deposits by 21percent, at the backdrop of a near-zero savings by households. Individual customers’ deposit now represents 43percent of UBA’s deposit funding. These low cost, stable deposits, reinforce the bank’s optimism on reducing funding cost, improving margins and profitability going forward. The Group maintained its appetite for a well-diversified balance sheet, with more than half of the assets in liquid, low risk instruments.

Asset Quality UBA’s vision and financial goals are based on creating a sustainable business which delivers long term value creation. This is based on maintaining moderate risk appetite to achieve a good balance between profitability and sustainability. Given its conservative provision on a major exposure, the bank do not expect any further charge. Thus, both NPL ratio and cost of risk should begin to moderate from 2018. Notwithstanding inflationary pressures and lagged impact of Naira devaluation, the bank’s cost-to-income ratio, CIR, remains below the sub-60 per cent guidance and the bank says it is on track to deliver our medium term CIR target. Boost to Internationalisation Previous week UBA announced that its London subsidiary has obtained regulatory permission to carry out Wholesale Banking activities in the UK. Following this authorization, UBA is now the only Sub-Saharan African bank to conduct banking activities in New York and London, as well as in 20 other countries across Africa. Commenting on the landmark achievement, the Group Managing Director/CEO, UBA PLC, Mr. Kennedy Uzoka said: “This authorization strengthens our capabilities in meeting the growing cross-border financing needs of our customers. It enhances our customer coverage and product offerings whilst positioning our Group as an optimal conduit for trade and foreign investments into and across Africa as well as export flows to the United Kingdom. Importantly, the licence will enable us to fulfill our aspiration of deepening financial intermediation in Sub-Saharan Africa and providing the much-needed financial support to the broader real sector of the African economy,” he added. The CEO of United Bank for Africa (UK) Ltd (“UBA UK”), Mr. Andrew Martin noted further, “this enhanced positioning of our business is timely, as it comes at a time when the UK is seeking to expand trade and broaden economic ties with Nigeria and Africa in general.”